Swiss National Bank softens tone on franc-selling policy
By William L. Watts , MarketWatch
LONDON (MarketWatch) -- The euro rebounded versus the U.S. dollar on Thursday as Spain managed to sell government bonds, but fell hard versus the Swiss currency as the Swiss National Bank signaled it was backing off its efforts to slow the franc's rise.
The euro (CUR_EURUSD 1.2375, +0.0076, +0.6179%) traded at $1.2376, up from $1.2304 in North American trade late Wednesday.
The single currency erased an earlier loss versus the dollar after the Spanish government managed to sell nearly 3.5 billion euros ($4.3 billion) in 10- and 30-year bonds, overcoming nervousness over the state of the nation's banking sector and public finances.
Demand was strong, although Spain had to pay high yields on the bonds. Read about Spain's bond auction.
"We seem to have seen some upside from the Spanish bond auction. Certainly the euro has picked up. There has been some benefit to sentiment," said David Page, economist at Investec Securities.
Spanish and European Union officials this week have repeatedly denied reports that an aid package was being fashioned for Madrid. Investors will be keeping close watch on a summit meeting of EU leaders in Brussels Thursday, which is focused on strengthening fiscal rules and their enforcement. Read about the EU summit.
Earlier, the euro fell hard versus the Swiss franc (CUR_EURCHF 1.3798, -0.0122, -0.8765%) after the Swiss National Bank appeared to soften the threat of continued intervention to slow the euro's decline. The euro was down 0.9% at 1.3787 francs in recent action, after hitting a low for the day at 1.3755 francs.
In its quarterly policy statement, the SNB said it would "take all measures necessary to ensure price stability" if downside risks materialize and, through a rise in the franc, lead to a renewed threat of deflation.
The statement, however, omitted the warning from March that the SNB was prepared to "act decisively to prevent an excessive appreciation of the Swiss franc against the euro." Read about the SNB's policy stance.
"The SNB's hints that it will scale back its currency intervention suggest that the franc is set to appreciate more sharply and interbank interest rates should rise back towards the bank's target of 0.25%. But with growth set to slow before long, we doubt that this target will increase for some time," said economists at Capital Economics.
Meanwhile, the Spanish auction results helped lift overall risk sentiment, analysts said, boosting U.S. stock index futures ahead of a flurry of U.S. economic data. Read Indications.
Increased risk appetite translated into gains for commodity-oriented currencies, with the Australian dollar (CUR_AUDUSD 0.8664, +0.0046, +0.5338%) up 0.5% versus the U.S. unit at 86.63 U.S. cents. The greenback fell 0.1% versus the Canadian dollar (CUR_USDCAD 1.0236, -0.0014, -0.1366%) to change hands at C$1.0242.
Investors will be watching for May U.S. consumer price inflation data, first-quarter current account figures and weekly jobless claims at 8:30 a.m. Eastern, followed by the June Philadelphia Fed Index and May leading indicators at 10 a.m.
The dollar fell versus the Japanese unit (CUR_USDYEN 91.3300, -0.0500, -0.0547%) to change hands at ¥91.28, down from ¥91.43 on Wednesday.
The dollar index (DXY 85.73, -0.35, -0.41%) traded at 85.749, down from 86.156.
The British pound (CUR_GBPUSD 1.4813, +0.0092, +0.6250%) gained ground versus a weakening U.S. dollar to trade at $1.4824, up from $1.791 on Wednesday.
The pound was bolstered in part by stronger-than-expected May retail sales data. The Office for National Statistics said sales jumped 0.6% from April, exceeding forecasts for a 0.3% rise.
Strategists said British Chancellor of the Exchequer George Osborne's speech Tuesday night handing oversight of the U.K. financial sector largely to the Bank of England was no major surprise to financial markets. Read about Britain's regulatory changes.
But remarks by Bank of England Governor Mervyn King Tuesday night reinforced ideas the central bank is unlikely to rush to raise rates or otherwise exit its easy monetary policy despite a recent run of above-target inflation, said economists at BNP Paribas.
The new British government appears intent on tightening fiscal policy aggressively and when it does, "the associated reduction in the [BOE's] outlook for growth and inflation will provoke further easing, most likely in the form of further quantitative easing," they wrote.
